The Mia Mottley-led administration will be under pressure to cut wages and salaries, as well as state subsidies to a number of entities if it is to avoid a balance of payments crisis, according to one regional economist.
These are the “low-lying fruits”, according to Marla Dukharan, for which the new Government must aim in order to “stop the haemorrhaging” of the ailing economy, which she likened to an injured patient in a vehicular accident.
“You are going to have to cut those. To cut transfers and subsidies basically you are going to have to deal with the loss making state enterprises and you are going to have to deal with the public sector wage bill. So those are what I would say would be the largest priorities now,” Dukharan told Barbados TODAY.
At the end of March this year the Central Bank reported that the fiscal deficit had been lowered from 5.7 per cent, while the reserves stood at only 6.9 weeks of import cover or $423 million.
The economic situation has been compounded by Government’s high debt, which reached 151 per cent of GDP at the end of March.
“They are going to have to stop the haemorrhaging of foreign reserves because right now reserves are, in my estimation, just around US$200 million, which is about five weeks of imports, and with rising oil prices and then the US$60 million payment to Credit Suisse by the end of the month, you are looking at a very close to balance of payments crisis.
“So the first thing the Government has to do is shore up reserves somehow and stem the outflow of US dollars. One of the most effective ways of stemming the outflow of US dollars is to fix the deficit. So that would be the second highest priority,” she added.
In addition, Dukharan recommended turning to the International Monetary Fund (IMF) for an adjustment programme, something Mottley has already said she was prepared to do if it became necessary.
However, she said it could mean two to three years of hard times before Barbadians could begin to enjoy the benefits of the programme.
“If they have a very aggressive front loaded programme, meaning that you do a lot of the adjustments upfront rather than we did in Trinidad for example, where you take your time and do a tentative piecemeal approach, if you do all of the adjustments upfront, in two to three years you are going to start to see the benefits of it. In other words, stability will return. So I think typically two to three years you can start to see positive results,” she reasoned, adding that any policy developed for the country should have “an element of climate resilience built into it”.
In its Barbados Staff Report for the 2017 Article IV consultation, the IMF had said while there was significant progress in reducing the high fiscal deficit, Government would fall short of meeting its ambitious fiscal adjustment targets set in May 2017.
“The adjustment, if maintained, will lead to a decline in the debt-to-GDP ratio, but debt will remain unsustainable. Further delays in privatization will lead to a continu=ed decline in reserves, while large financing requirements remain a serious challenge,” it added.
In the January 2018 report, which was based on a November 2017 visit, the IMF also pointed out that fiscal adjustment should focus on reducing expenditure and should be centered on cutting transfers by reforming state-owned enterprises and public pensions.